I’ve seen this drawback too many occasions to rely. A latest federal courtroom resolution out of Tennessee drives the lesson dwelling with painful readability. Property house owners routinely assume they’re protected as a result of their tenant procured insurance coverage, listed them as a loss payee, and possibly even added them as a further insured. Then a hearth happens, the constructing is a complete loss, and the proprietor learns far too late that they had been by no means actually insured for what they thought mattered most.
The case concerned a business constructing owned by Steadfast Investments and leased to a tenant. The tenant purchased the insurance coverage coverage and was the one named insured. The proprietor was listed as a loss payee and likewise appeared in a further insured endorsement restricted to legal responsibility protection. After a hearth destroyed the constructing, the insurer paid an precise money worth quantity collectively to the tenant and the proprietor. The proprietor believed the coverage was a valued coverage and demanded the complete coverage restrict for the constructing. The insurer refused. Litigation adopted.
The courtroom first dominated that the coverage was an open coverage, not a valued coverage, as a result of the contract language required valuation after the loss, included alternative price provisions, and contained an appraisal clause. 1 That a part of the ruling is necessary, however the extra instructive and troubling lesson for property house owners lies within the more moderen findings ending the case.
The proprietor argued that, as a loss payee and meant beneficiary of the coverage, it had the fitting to problem the insurer’s valuation and implement the coverage’s cost obligations. The courtroom agreed, partially, that the proprietor was an meant beneficiary, however solely of a really slender promise. The coverage provision that mattered mentioned the insurer would alter the loss with the tenant and challenge cost collectively to the tenant and the loss payee. That promise was stored. The insurer adjusted the loss with the tenant and issued a joint test.
The courtroom famous that what the coverage did not do was give the constructing proprietor any proper to take part within the adjustment, dispute the quantity of loss, demand appraisal, or declare alternative price or coverage limits. These rights belonged solely to the named insured, who was the tenant. The courtroom emphasised that even an meant third-party beneficiary can solely implement the precise guarantees made for its profit, not your entire insurance coverage contract.
In plain English, the courtroom dominated that the proprietor had a proper to be on the test, however no proper to argue about how huge the test needs to be. 2
This final result ought to concern each property proprietor and actual property lawyer working with business property house owners who depend on tenant-placed insurance coverage. Loss payee standing is commonly handled as a security web. It’s not. Being a loss payee usually ensures cost is made collectively, nevertheless it doesn’t confer management, valuation rights, or standing to problem how the insurer adjusts the declare. Further insured endorsements may be equally deceptive, particularly after they apply solely to legal responsibility protection and to not property harm.
I’ve written and spoken about this challenge for many years as a result of it retains recurring. Homeowners signal leases requiring tenants to insure the property. Certificates of insurance coverage are collected and filed away. Everybody feels snug till a catastrophic loss exposes the hole between perceived safety and precise protection. At that time, the coverage language, not assumptions or intentions, controls the result. Some insurers agree to regulate the declare with the proprietor, whereas others take a really laborious stance.
The repair just isn’t sophisticated, nevertheless it requires vigilance. Property house owners, property managers, and actual property attorneys concerned with these points ought to insist on being named insureds on property protection, or at the least make sure the coverage features a true constructing proprietor loss payable clause that provides the proprietor adjustment rights and direct cost obligations. Reviewing declarations pages and endorsements just isn’t busywork. It’s danger administration in its most elementary type.
This Tennessee case is a reminder that courts will implement insurance coverage contracts precisely as written. They won’t rescue house owners from unfavorable buildings just because the consequence feels unfair after a loss. Insurance coverage is a contract drafted lengthy earlier than the hearth, not a sympathy instrument utilized afterward.
The attorneys on either side of this case are glorious. I anticipate there could also be an enchantment. I’ll preserve readers abreast of what occurs.
Thought For The Day
“An oz. of prevention is value a pound of treatment.”
—Benjamin Franklin
1 Steadfast Investments & Properties v. AmGuard Ins. Co.No. 1:23-CV-01091 (WD Tenn. Julu 1, 2024).
2 Steadfast Investments & Properties v. AmGuard Ins. Co.No. 1:23-CV-01091 (WD Tenn. Jan. 8, 2026).
